In order to calculate the impact on the Dutch economy of energy policy scenarios, at the level of industries (1 or 2-digit), a multi-regional and multi-sectoral Input-Output (IO) model has been developed to calculate the sectoral price effects of a CO2 tax.
This standard Leontief IO price model has wider applications and can also be used for different purposes, for instance for analyzing the impact of trade tariffs. Calculations are typically based on fixed IO data for a recent year. Such an approach is very useful for short horizons in which the mixture of capital, labour and energy in production cannot be changed. For longer horizons, however, we need to take into account possible factor substitution effects of relative price changes, such as those resulting from a CO2 tax. CO2 pricing aims at substitution from energy inputs towards more capital/labor intensive production. Additionally, CO2 pricing may lead to a greening of the electricity mix. Therefore the standard Leontief IO price model has been modified and extended to take into account substitution effects.
For information on the model and an application to carbon taxing see the links below.
- Hebbink G., L. Berkvens, M. Bun, H. van Kerkhoff, J. Koistinen, G. Schotten and A. Stokman, 2018: The price of transition: an analysis of the economic implications of carbon taxing, DNB Occasional Study 8, October 2018 (link)
- Bun, M.J.G., 2018, The economic impact of pricing CO2 emissions: Input-Output analysis of sectoral and regional effects (link)